By Anna Rascouet Aug. 14 (Bloomberg) -- European bonds rose after a report showed European consumer prices dropped more than initially estimated in July. The advance pushed the yield on the benchmark 10-year German bund to its lowest level in a week as the European Union statistics office in Luxembourg said prices in the 16-nation euro region fell an annual 0.7 percent, exceeding a 0.6 percent estimate published on July 31. Spain’s economy contracted more than forecast in the second quarter. Bonds also gained after a record $15 billion auction of 30-year U.S. Treasuries drew more demand than at previous auctions. “The inflation figure is a little weaker than expected and it’s helpful to bunds,” said Elisabeth Afseth, a fixed-income analyst at Evolution Securities Ltd. in London. “It is mixed news, but the market is cautious on the European front.” The yield on the German 10-year bond fell 5 basis points, or 0.05 percentage point, to 3.38 percent as of 10:55 a.m. in London, near the lowest level since Aug. 7. The 3.5 percent security due July 2019 climbed 0.39, or 3.90 euros per 1,000- euro ($1,428) face amount, to 101.01. The 30-year yield declined 3 basis points to 4.07 percent and the two-year yield fell 2 basis points to 1.35 percent. The difference in yield, or spread, between the German 10- year note and its Spanish equivalent rose to 49 basis points, its highest level this week after the Madrid-based National Statistics Institute said Spain’s economy contracted by 1 percent from the previous quarter. Economists predicted a contraction of 0.9 percent. Germany and France both reported yesterday their economies resumed expansion in the same period. Spain has the highest unemployment rate in Europe at 18 percent. The sale of the U.S. securities attracted bids for 2.54 times the amount on offer, compared with an average of 2.36 times at the last 10 auctions. European bonds gained 0.3 percent this year, compared with a 4.28 percent loss for U.S. Treasuries, Merrill Lynch & Co. indexes show. To contact the reporter on this story: Anna Rascouet in London at arascouet@bloomberg.net

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